Setback for Chinese Tech companies

The Chinese tech companies continue to face increasing suspicion for their breach of data security and allegiance to Chinese Communist Party and military. Despite China’s massive investment in emerging technology, its acceptability in the international market has not kept pace. In the last two years, Chinese companies have faced severe blow due to ban on their tech companies in Europe, US and Oceania.

The US Federal Communications Commission (FCC) banned on November 25 the sale and import of new communications equipment and devices produced by five Chinese companies, including Huawei, ZTE, Hikvision, Dahua and Hytera. citing public safety, security of government facilities, physical surveillance of critical infrastructure, and other national security threats.

This is a huge blow to Chinese companies as they can`t legally import or sell anything with a radio in the US without the FCC authorization. The latest step by the United States would isolate Huawei and other Chinese tech firms in domestic and international markets. While outlining the new rules, the FCC said that the agency took the step “to further secure our communications networks and supply chains from equipment that poses an unacceptable risk to national security of the United States or the security and safety of United States persons.”

Congress and the US federal government have agreed to limit the sale and import of equipment and devices produced by Chinese firms, citing concerns about the companies’ close ties to Beijing and the potential for bad actors to exploit vulnerabilities in the technologies to conduct cyber-espionage operations or cyber attacks on US critical infrastructure.

Technology is the engine that powers superpowers.  China and Chinese tech companies have been ramping up efforts in new technology research and development (R&D). The Chinese tech sector also powers Beijing’s military build-up, unfair trade practices and repressive social control. Over the past decade, China’s investment in science and technology has increased significantly from Yuan 1.03 trillion to Yuan 2.79 trillion, ranking second in the world. Its major technology company Huawei’s R&D investment reached Yuan 142.7 billion in 2021, accounting for 22.4 % of its annual revenue.  Huawei reported a Yuan113.7 billion (USD 15.9 billion) net profit in 2021, a surge by 75.9 %.

However, it’s is alleged that Chinese tech companies run on instructions from Chinese Communist Party and indulge in malpractices. They store personal data for espionage and the equipment they produce causes threat to national security of the procuring countries. For instance, in 2018, the African Union building in Addis Ababa Ethiopia was found to have a rigged cluster of servers that was stealing videos from the premises of the AU. The Chinese authorities had established a digital network in the AU building, which also had a backroom channel for transferring sensitive data.

The FCC has taken steps in the past to crack down on the use of telecommunications equipment from Chinese firms, including designating Huawei and ZTE as national security threats in June 2020. The latest announcement is the first time the agency has directly moved to limit public access to new devices over security risks.

The Trump administration’s trade war with China had already included many new names to the Commerce Department’s Entity List. Notably, the Biden administration has doubled down on competition with China, resulting in a four-fold increase in Chinese companies in the Entity List from 130 in 2018 to 532 as of March 2022. Most of the prominent Chinese companies related directly or indirectly to the chip and semiconductor industry have been put on the US Entity List. Partly it is due to the challenge that China poses to tech superiority of the US and West, but majorly due to threat perceptions.

The FCC’s new rules implement the directive of the Secure Equipment Act, which President Joe Biden signed into law on November 11, 2021. The law prohibits the FCC from reviewing or issuing new equipment licenses to firms if they are on its “Covered Equipment or Services List.” All five Chinese companies targeted by the FCC, Huawei and ZTE, as well as Hikvision, Dahua and Hytera were added to the covered list on March 12, 2021.

In the United States, the FBI reportedly found that Huawei equipment on cell towers in the rural Midwest located near US military bases. The bureau determined the equipment could capture and disrupt restricted communications used by the Defense Department, such as US Strategic Command, which is in charge of the nation’s nuclear weapons. The FCC is also aiming for USD 5 billion to help US carriers with the massive task of replacing equipment from Huawei and ZTE. Last year also the popular video-sharing platform TikTok, which is owned by Chinese company ByteDance had received criticism over its data privacy policies.

It is not only the US, but many other countries have also banned Chinese companies due to perception of threat to national security. Canada banned Huawei and ZTE equipment in their high speed 5G in May 2022. Before that, Britain, Australia and New Zealand had restricted their equipment in 5G telecom. In yet another instance, German cabinet blocked the takeover of Dortmund based ELMOS, a semiconductor chip production facility by SILEX, a subsidiary of the Chinese group SAI Microelectronics. ELMOS develops, produces and sells semi conductors primarily for use in vehicles. Partners of the ruling coalition urged the government not to let China increase its presence in critical infrastructure.

China’s notorious nature in carrying out surveillance is not a secret. In a round table discussion on China, the Dutch Foreign Affairs Committee highlighted that policies and actions of the Netherlands should take into account Chinese Communist Party’s ambitions and strategies.


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